On April 26, 2023, a New York appellate court covering Suffolk County upheld the pre-answer dismissal of a legal malpractice suit. A disgruntled client in a commercial mortgage foreclosure action had his legal malpractice claim dismissed at the outset of litigation because his claim was wrong on the law and facts. The attorney defending the legal malpractice action had represented the client for six months in the foreclosure action at the time he withdrew from representing the client. The client retained new counsel and the property was sold for $2.5M of which $1.3M was paid to the lender which resolved the foreclosure.
The legal malpractice claim was founded on a mistaken belief that the court in the foreclosure action would have ruled in the client's favor had the affirmative defense of criminal usury been asserted by the first attorney. The interest rate on the loan would increase from 6.5% to 24% only in the event of a default - but contrary to the claim, it did not increase to 30.5% which would constitute criminal usury. The Appellate Division, Second Department explained: "...the evidence indisputably demonstrated that the annual interest rate imposed under the loan documents was 6.5% and, therefore, was not criminally usurious. Moreover, contrary to plaintiff's contention, the defense of usury does not apply where the terms of the note impose a rate of interest in excess of the statutory maximum only after default or maturity." Bono v Stim & Warmuth, PC, 2023 N.Y. Slip Op. 02099
Practice Lesson: This litigation started when the attorney sued his former client in Small Claims Court for outstanding fees of $2163.00 which resulted in a counterclaim of legal malpractice. The case was then removed to Supreme Court with the likely expenditure of tens of thousands of dollars to dismiss the retaliatory legal malpractice.